1) Federal Government Home Buyers' Plan
The Home Buyers' Plan (HBP) is a Canadian Government program that allows you to withdraw up to $25,000 from your RRSP (if you have one) to help you buy or build a home.
Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years starting two years after withdrawal.
Application in a Purchase or New Build: The purchase or build must be a qualifying home. Visit the official government website for all the details.
Application in a Rent-to-Own: The HBP rules require that the property title transfer to your name, which occurs only when you arrange your own mortgage. Hence, if you are considering using RRSP funds for your rent-to-own down payment, you MUST complete the purchase transaction before October 1 of the year after the year of the withdrawal to avoid a nasty tax bill. This means you'd have a window of between 9 and 21 months to complete your purchase depending when you withdraw. For example: If you withdrew RRSP money on on Jan 1st, 2012 you'd have to September 30th, 2014 (21 months later) to complete purchase. If you withdrew on December 31st, 2011, you'd have until September 30th, 2012 (9 months later) to complete the purchase.
2) First Time Home Buyers' Tax Credit (HBTC)
The Federal Goverment also has a First Time Home Buyers' Tax Credit (HBTC), which can increase your income tax refund (or decrease your tax bill!), though - unfortunately - it doesn't help out with your down payment. Learn more.
3) CMHC Down Payment Flexibilities
CMHC (Canadian Mortgage and Housing Corporation) and Genworth Financial, as insurers to most of Canada's mortgage lenders, have made it easier to come up with your down payment for traditional mortgage financing. Here are your choices:
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Applicant savings
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Rent-to-Own deposits and monthly payments in excess of "market rent"
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RRSP withdrawal (per the HBP above)
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Funds borrowed against proven assets
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Sweat equity (<50% of minimum required equity)
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Land that doesn't have any liens against it
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Proceeds from sale of another property
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A non-repayable gift from immediate relative (this is a very popular and common method)
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Equity grant (non-repayable from federal, provincial or municipal agency - very rare)
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Any source that is arm’s length to and not tied to the purchase or sale of the property such as borrowed funds, gifts, 100% sweat equity and lender cash back incentives.
4) Vendor Assistance Programs
Often tenant/buyers considering a lease-purchase (rent-to-own) program should ask the vendor about a Vendor Assistance Program whereby the seller provides a further credit to be applied against the property purchase price. Typically it works like this - each month you are given the opportunity to pay extra money in addition to your rent, which accumulates toward your down payment. For every $1 dollar you pay above the rent, the seller might offer you an additional credit of, say, $0.50 to be applied against your home purchase price. Why would they do this? Often they do this to encourage you to accumulate your down payment with them rather than the bank, thereby increasing the chance that you ultimately conclude your purchase transaction.
Illustration: If Rent= $1500/mo and you are paying an extra $300/mo. towards your down payment, the seller might credit you an additional $150/mo. This means, when you are ready to purchase, the sales agreement should be amended to show that you paid $300 each month added to your original deposit. Lenders will recognize this as down payment. The sales price is reduced by $150 for each $300 extra payment received. Over 18 months for example, the purchase price reduction would be equal to a $2700 grant ($150x18).
If you are interested in a rent-to-own, we can suggest how you might negotiate this term with the seller.
Note - a vendor/seller can incent you to pay more each month by reducing the purchase price, but cannot increase your down payment credits - only you can do that.